1. Technical Field
Embodiments of the present invention generally relate to automated computer systems. More particularly, embodiments relate to automated computer systems used to test the effectiveness of hedge transactions.
2. Discussion
“Hedging” is a banking principle in which a bank offsets risk present in a first set of financial instruments (a.k.a. hedged items) with risks from a second set of financial instruments (a.k.a. hedging items). Types of financial instruments are selected such that, when risk rises in the first set of instruments, the risks of the second set of instruments typically falls. Hedging, therefore, provides a set of checks and balances to a bank's financial management operations.
A hedge ratio is one measure of the effectiveness of a hedge. A conventional hedge ratio is a ratio of the value of the hedged items divided by the value of the hedging items. In the United States, governing law may mandate hedging ratios. In several European countries, governing law mandates hedging ratios. Even if governing law does not mandate hedging ratios, fiduciaries may want to evaluate hedging transactions to ensure that a satisfactory ratio is maintained. The specifics of the legal and fiduciary requirements relating to hedge transactions in the United States and countries foreign to the United States are not important for the present discussion.